Parliamentary ombudsman Ann Abraham has rejected the Government's proposed compensation plan for those who lost money with Equitable Life.
This is only the fifth time in 42 years the ombudsman has used its powers to lay a special report before MPs to highlight an "injustice" that has not been righted.
In a letter published today, Abraham criticises the Government for rejecting many of her recommendations relating to its handling of problems at the collapsed insurer.
She dismissed the Government's latest proposals, announced last week, for a compensation amount of between £400m and £500m as "unsafe and unsound".
Abraham said it was clear from the Government's response to her original findings that "not everyone who has suffered injustice will be eligible for a payment, and that not all of the injustice suffered will be put right".
A million customers saw their retirement savings drastically cut when Equitable was sent into chaos by a ruling in 2000 which stated the insurer must honour guarantees it had made to pension investors.
Campaigners have battled for a decade for compensation, and last year it looked as if the Government would have to pay out billions when Abraham said she had found evidence of "serial regulatory failure" by government departments and watchdogs which were supposed to protect the insurer's customers.
Treasury minister Yvette Cooper apologised for the "maladministration" that led to the insurer's near collapse but rejected calls for the Government to offer compensation to all Equitable members.
She said while some policyholders who lost money may be entitled to redress, payouts would focus on helping those who had been "disproportionately affected".
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